What it means
The idea is simple: someone says yes, but not yet. The offer sets out price and terms in full, then attaches a list of things that must happen before anyone is legally committed to completing.
Conditional offers turn up across business life. In property they usually hang on valuation and finance, in mergers and acquisitions on due diligence and competition clearance, and in recruitment on references, right to work checks and occasionally a medical.
Each condition is really a risk being parked with one side. A buyer who makes an offer conditional on funding is telling the seller that if the lender says no, the deal dies and the buyer loses nothing beyond the fees already spent.
Conditions come with deadlines, often called long stop dates, after which the offer lapses automatically. Sellers push for short windows because an asset sitting under a conditional offer is effectively off the market, while buyers want enough time to do the work properly.
The nuance most people miss is that conditions vary enormously in how much wriggle room they give. A condition worded as subject to satisfactory due diligence hands the buyer a near free exit, whereas subject to regulatory approval is objective and sits outside either party's control.
In practice
Real-world examples.
Example
A logistics firm offers a candidate a $72,000 operations manager role, conditional on two satisfactory references and a right to work check. The candidate hands in notice before the references land, one referee disputes the dates on the CV, and the offer is withdrawn.
Example
A packaging group offers $6,000,000 for a competitor, conditional on due diligence and on the target's top customer renewing its supply contract. The contract is renewed on worse terms, and the buyer uses the condition to reopen price talks rather than to exit.
Example
A cafe chain makes a conditional offer on a corner site, subject to obtaining planning consent for an extraction flue. The landlord agrees a ninety day long stop date, and when the council refuses consent on day sixty-two the offer lapses with no penalty on either side.
Formula
Calculation
There is no single formula for a conditional offer, but the condition that most often decides whether one completes is the lender's valuation, tested against loan to value.
Loan to value = loan amount / the lower of purchase price or valuation
A buyer offers $400,000 for a small commercial unit, puts in $80,000 of their own cash and asks the bank for $320,000. That is a loan to value of $320,000 / $400,000 = 80%, and the offer is made conditional on the bank's surveyor supporting the price and on the loan to value staying at or below 80%.
The surveyor values the unit at $380,000 instead. The bank will now lend only 80% of $380,000 = $304,000, which leaves the buyer $320,000 - $304,000 = $16,000 short. Under the condition the buyer has three clean choices: find another $16,000 of cash, renegotiate the price down to $380,000, or withdraw and recover the deposit.Case study
Seen in the real world.
The following is an illustrative and entirely fictional example. Copperline Dental Group, an invented practice consolidator, offered $2,400,000 for a family dental surgery. The offer was conditional on three things: verified patient records showing 3,000 active patients, the retiring principal staying on for a two year handover, and no adverse findings in the clinical audit.
Due diligence defined an active patient as one seen in the previous eighteen months, and on that basis the file produced 2,100 rather than 3,000. Because the offer had been built on a value per active patient of $2,400,000 / 3,000 = $800, the buyer repriced to 2,100 x $800 = $1,680,000, a reduction of $720,000.
The fictional seller was furious but had no strong answer, because the condition had been written with a measurable test rather than a vague reference to patient numbers. The deal completed at $1,760,000 after the buyer conceded a small goodwill payment for the handover commitment, and the whole renegotiation happened inside the offer rather than through a fresh round of bidding.
Watch out
Common mistakes.
- Treating a conditional offer as a done deal and committing money, notice periods or stock before the conditions have actually been cleared.
- Writing conditions so vaguely that they become a free option to withdraw, which sellers will price into the deal or refuse outright.
- Forgetting to set a long stop date, leaving an asset tied up indefinitely while the other side takes its time.
Questions
People also ask.
Is a conditional offer legally binding?
Generally not until the conditions are met or waived, though any exclusivity, confidentiality and cost sharing clauses inside the document usually do bind both parties immediately.
Who decides whether a condition has been satisfied?
It depends on the wording, so an objective test such as a valuation figure is verifiable, while a subjective test such as satisfactory findings leaves the judgement with the party who imposed it.
Can a seller keep marketing the asset during a conditional period?
Only if there is no exclusivity clause, which is precisely why buyers ask for one before they spend money on surveys and advisers.
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